Migrant care costs weigh on Denver’s safety net healthcare system

Denver Health, Colorado’s sole safety net healthcare provider, is nearing a breaking point as an influx of migrants adds to escalating uncompensated care costs. 

The health system has received no reimbursement for treating 8,000 migrants in 20,000 visits, Donna Lynne, its CEO, told the Denver City Council’s Finance & Governance Committee this month. 

“While I have tremendous compassion for what’s going on, it’s heartbreaking, it’s going to break Denver Health in a way that we didn’t even anticipate when we negotiated the 2024 operating agreement,” she said.

Under that agreement, Denver’s will pay Denver Health $73 million in fiscal 2024 to cover patient care and services the city purchases from the health system. That amount was up from $69 million in fiscal 2023.

Uncompensated care costs have risen from $59 million in 2020 to $120 million in 2022 and are projected to hit $135 million in 2023, according to an analysis presented to the city council committee by consultant Ernst & Young. 

It also showed that uncompensated care as a percent of total operating expenses increased by 3.7% since 2020 and that Denver Health’s operating margin fell from $56.3 million in 2018 to minus-$23.8 million in 2022.

Denver Chief Financial Officer Nicole Doheny told the committee the analysis will be helpful as discussions about the operating agreement and the fiscal 2025 budget take place in the coming months. 

More than 31,000 migrants have received city services over the past year, the Denver mayor’s office reported in December.

Texas Gov. Greg Abbott’s Operation Lone Star, which is aimed at securing the state’s border with Mexico and which has bused or flown more than 100,000 migrants to cities in five states, plus Washington, D.C. since 2022, has contributed to Denver’s migrant population. 

Denver, which has only been a destination for Texas transports since May, has received the third-largest number of migrants at 15,900, behind New York City’s 37,400 and Chicago’s 31,100, according to the latest tally from Abbott’s office.

Lisa Washburn, a managing director at Municipal Market Analytics, said healthcare needs for a large influx of uninsured migrants are an added stress for safety net hospitals. 

“Demand for services from a new and quickly growing uninsured population will reasonably limit services provided to covered, revenue-generating patients,” she said in an email. “And after the recent years of stress on the sector, even as signs of stabilization emerge, many hospitals may find themselves less financially well-equipped to absorb incremental challenges.”

Persistently high labor and operating costs were cited by S&P Global Ratings for the negative outlook it gave the acute health care sector in 2024. 

“The pace of margin recovery, supported by labor management, throughput and efficiency gains, and performance improvement plans, coupled with balance-sheet and enterprise strengths, will be key for providers to maintain credit quality in the coming year,” the rating agency said.

Lynne said triple-B-rated Denver Health is “required to take anyone who comes into our emergency room regardless of where they live by county, by state, or by country.” 

To address financial pressures, the system has had to close beds, defer maintenance, reduce employee salary increases, and turn away patients, particularly in the areas of mental health and substance abuse, she added. 

In a statement to The Bond Buyer, Denver Health said it is not currently receiving any federal funding for migrant costs, but is pursuing multiple avenues for funding, including seeking another cash infusion from the state.

Last year, Colorado lawmakers approved a one-time, $5 million supplement payment to offset the system’s higher costs and lower-than expected revenue. In May, Kaiser Permanente announced a $10 million commitment to continue healthcare access “for those who do not have the means to pay.”

Undocumented immigrants are ineligible for federally funded healthcare like Medicaid and Medicare, although some states, including Colorado, have adopted programs for certain children or adults regardless of their immigration status, according to healthcare policy research organization KFF.    

Denver Health, which dates back to1860, was split off in1997 from the city and county of Denver with the transfer of healthcare programs, services, and facilities to the state of Colorado-created Denver Health and Hospital Authority.

The city has contributed $230 million in capital funding to the authority since 2003 through the issuance of voter-approved general obligation bonds paid off with Denver property tax revenue. Projects included main campus construction and improvements.

Denver Health last sold its own revenue bonds in 2019 to refund some outstanding debt and to fund a portion of an outpatient clinic. Its approximately $300 million of currently outstanding bonds are rated BBB by Fitch Ratings and S&P.

Fitch analyst Madeline Tretout said Denver Health has always had a “very challenging operating environment” as it relies heavily on government funding, including Medicare and Medicaid.  

“Layer that with some of the recent challenges the industry has seen including labor pressure, wage pressure, and inflation – It’s an even more challenging environment,” she said, adding Denver Health has consistently operated at a level that supports the BBB rating.  

Only 15% of Denver Health’s patients have commercial insurance, with 51% relying on Medicaid, 17% on Medicare and 17% are uninsured, according to Lynne.

The number of migrants crossing the border with Mexico is up substantially. In fiscal 2023, U.S. Customs and Border Protection recorded 2.48 million of what it terms “Southwest Land Border Encounters,” up more than 42% from fiscal 2021.

“Dynamic conditions along the Southwest border indicate a changing demographic, one in which individuals and family units are migrating from countries much farther away,” Raul L. Ortiz, the CBP’s then-chief of U.S. border patrol, said in written testimony to Congress in May 2023.

Safety net health systems in other areas are spending more to treat migrants.

Illinois’ Cook County, which provides indigent care in the Chicago area, appropriated an additional $70 million in its $9.26 billion fiscal 2024 budget for “new arrival health care costs” as part of a $100 million Disaster Recovery and Relief Fund.

City budgets are also stressed. 

“In November 2023, the immigration court backlog reached 3 million pending cases, an increase of 1 million from 2022,” S&P said in its 2024 outlook for local governments. “If the issue is significant enough for long enough, such a shift in costs and social service requirements could affect credit quality.”

Denver reported it has spent more than $35 million to provide shelter and other services for migrants over the past year.

“This unprecedented crisis continues to escalate here in Denver, and while we will continue to provide as many resources as we can, it’s past time for the federal government to step up, support our work, and increase work authorization (for migrants),” Mayor Mike Johnston said in a statement last month.